Should more Nigerian farmers take loans?

Questions answered in this article:

-What are the differences between loans and grants for farmers?

-What are the advantages and disadvantages of each option?

-Which option offers a more reliable path for farmers seeking long-term growth?

Access to finance remains one of the biggest hurdles for smallholder farmers in Nigeria. The gap between what farmers need and what they actually receive is staggering. At the 2025 African Food Systems Forum in Dakar, the African Development Bank (AfDB) revealed that food producers across Africa secure less than 4% of commercial loans, leaving an annual funding shortfall of about $80 billion.

Why is agriculture so underfunded? Experts point to a mix of challenges: banks and investors often see the sector as too risky compared to industries like banking, manufacturing, and services, while threats such as pests, climate shocks, poor yields, and price volatility further discourage financing.

As a result, much of Nigerian agriculture is propped up by government programs and donor support, often framed as charity rather than business investment. But for farmers themselves, the question remains: what is the smarter way to seek financing, through loans or grants?

Before we weigh the options, let’s break down what each means and the advantages and disadvantages they bring to the table.

What is a Loan for Farming?

A loan is borrowed capital that allows a farmer to produce now and pay later. While some argue that farmers, especially beginners, should avoid loans until they gain experience, loans remain an essential tool for any business that wants to scale. Avoiding them altogether, in the name of preserving the “noble act” of producing food, is an outdated mindset that only keeps smallholder farmers small.

In Nigeria, several loan options exist for farmers:

• Commercial banks have agricultural loan desks, created to ease access but often accused of sidelining farmers while funding other sectors far more generously.
• The Bank of Agriculture (BOA) and Central Bank of Nigeria (CBN) interventions, such as the Anchor Borrowers’ Programme and ACGSF, have become major financiers of food production, though they remain inadequate to meet farmers’ needs.
• Microfinance banks, cooperatives, and credit unions provide smaller, community-driven financing.
• Supplier credit and off-taker financing allow farmers to access inputs or cash with repayment tied to harvest.
• Fintech and digital lenders are increasingly filling the gap with quicker, less bureaucratic loans.

Why Farmers Take Loans

Loans are designed to help farmers cover costs they cannot easily pay up front:

• Short-term needs: seeds, fertilisers, pesticides, animal feed, labour, and irrigation.
• Medium-term needs: equipment, tools, small machinery.
• Long-term needs: farmland purchases, tractors, storage facilities, or agro-processing investments.

Key Features of Farm Loans

• Repayment: Must be paid back, often tied to the crop or livestock production cycle.
• Interest Rates: May be subsidised under government schemes or set at higher commercial levels.
• Collateral: Land titles, equipment, or guarantors are often required, though some programs waive this for smallholders.
• Sources: Banks, BOA, microfinance institutions, cooperatives, fintech platforms, and supplier/off-taker arrangements.

What is a Grant for Farming?

A grant is financial support given to farmers that does not require repayment. Unlike loans, grants are provided to encourage agricultural production, improve food security, or promote specific practices such as climate-smart farming. For farmers, grants can feel like a lifeline, helping them expand or stabilise their operations without the burden of debt.

In Nigeria, grants and similar support usually come in the form of:

• Government subsidies: Reduced prices for fertilisers, seeds, or access to mechanisation services.
• State Agricultural Development Programmes (ADPs): Inputs, training, or equipment distributed at subsidised or no cost.
• Donor and NGO support: International organisations like IFAD, USAID, FAO, and local NGOs fund farmer projects, especially for youth and women.
• Climate and green funds: Grants from global initiatives such as the Green Climate Fund (GCF) or Global Environment Facility (GEF) that support farmers adopting sustainable practices.

Why Farmers Seek Grants

Grants are attractive because they ease financial pressure and open opportunities that might otherwise remain out of reach:

• Input support: Access to seeds, fertilisers, and tools at no cost.
• Capacity building: Training, extension services, and technology transfer.
• Climate adaptation: Resources for irrigation, soil conservation, or renewable energy.
• Market linkage programs: Support to connect farmers with processors and buyers.

Key Features of Farm Grants

• No Repayment: Farmers are not expected to pay back funds or inputs.
• Conditional Support: Grants often target specific groups (smallholders, women, youth) or practices (organic, sustainable, climate-smart).
• Limited Reach: Available funds are usually smaller than the need and may not cover every farmer.
• Source: Government initiatives, international donors, NGOs, and climate funds.

Why a Farmer Should Take a Loan

Loans can be a powerful tool for farmers who want to expand or stabilise their operations. With this support, a farmer does not have to delay production while waiting to gather savings, which could mean missing an entire planting season. Another advantage is that loan schemes can be structured to fit different scales of farming, from smallholders cultivating a few hectares to large commercial operations.

Loans also encourage discipline, productivity, and innovation because repayment is tied to the harvest cycle, pushing farmers to plan carefully and manage their resources more efficiently. In Nigeria, certain specialised programmes, such as the Central Bank’s NIRSAL, even help reduce risk by guaranteeing part of the loan for the lender. Beyond traditional banks, the rise of digital and fintech lending platforms has made access easier, with fast approvals, lower paperwork, and fewer bureaucratic hurdles. For farmers who are ready to grow their business, a loan can unlock opportunities that personal savings or grants alone may not provide.

Why a Farmer Should Be Careful About Taking a Loan

At the same time, loans come with serious risks and challenges that farmers cannot ignore. One of the biggest obstacles is cost: commercial banks and microfinance institutions often charge high interest rates, which can quickly eat into profits. In addition, many lenders require collateral such as land titles, guarantors, or fixed assets, requirements that exclude most smallholder farmers who lack formal documentation or valuable property.

Even when farmers do secure a loan, repayment can become a burden if harvests fail due to weather shocks, pests, or fluctuating market prices. This creates the risk of falling into a debt trap, where the farmer owes more than they can earn. Programmes such as the Anchor Borrowers’ Programme, while well-intentioned, have faced criticism for delays in input delivery and repayment disputes, leaving farmers stranded. Furthermore, the short repayment timelines often imposed by lenders do not always align with agricultural cycles, especially for crops that take longer to mature. For these reasons, loans can sometimes worsen a farmer’s situation instead of improving it.

Why a Farmer Should Seek a Grant

Grants can be a lifeline for farmers because, unlike loans, they do not require repayment. Grants often come with additional support beyond money, such as subsidised seeds, fertilisers, machinery services, or training. For smallholder farmers who struggle to access formal credit, these forms of assistance can provide the foundation they need to improve yields and adopt modern farming practices.

Grants are also useful for promoting innovation and resilience. For instance, climate-focused programs may provide resources for irrigation systems, renewable energy, or soil management techniques that protect farmers against erratic weather. International donors and NGOs often design grants specifically to empower vulnerable groups such as women, youth, and subsistence farmers, ensuring that resources reach those who need them most. For farmers with limited means, grants can open doors to opportunities that would otherwise remain out of reach.

Why a Farmer Should Be Careful About Relying on Grants

As attractive as they may seem, grants are not a guaranteed or sustainable solution for most farmers. The biggest challenge is their limited reach: the number of farmers needing support far exceeds the resources available, leaving many excluded. In Nigeria, government subsidies and state programs are often plagued by bureaucracy and political influence, meaning that distribution can favour certain groups while leaving others behind. Delays are also common, with inputs sometimes arriving too late in the farming season to be useful.

Another concern is dependency. Because grants are seen as free support, some farmers may wait for them instead of actively seeking other ways to finance their operations. This mindset can slow down growth and innovation, keeping smallholder farmers in a cycle of survival rather than progress. Furthermore, grants are usually tied to specific conditions or donor priorities, which may not always align with the farmer’s immediate needs. In the long run, relying too heavily on grants can leave farmers vulnerable once the programme ends or funding dries up.

Conclusion

Grants are valuable, but they are unpredictable, limited in reach, and often tied to politics or donor priorities. They may offer temporary relief, but they cannot serve as a foundation for long-term agricultural growth. Farmers who rely solely on grants risk being left behind when funding ends or when support does not arrive on time.

Loans, on the other hand, put farmers in control. They provide reliable access to capital that can be planned around, scaled to fit the size of the farm, and tailored to immediate and future needs. While loans carry risks, such as interest rates and repayment obligations, these challenges can be managed with proper planning, responsible borrowing, and the growing number of specialised agricultural credit schemes.

For Nigerian farmers looking to grow beyond subsistence and build sustainable agribusinesses, loans represent not just financing but an investment in independence, discipline, and scalability. In the long run, loans are not a burden but a bridge—from smallholder survival to commercial success.